Internet shares lead tech stock slide

CBS.MarketWatch.com

NEW YORK (CBS.MW) --Internet stocks led a widespread pullback for the tech sector Tuesday as edgy investors dumped shares amid worriesthat a slew of new IPOs and higher interest rates could hurt shareholder value.

"Interest rate concerns are the real key," said Steve Singleton, director of equity research at Robert Van Securities. "They are causing people to look at the price/earnings multiples of some of these stocks, particularly those that have done very well."

"And until interest rate fears fade, we'll continue to see pressure in the tech sector," he added. "We're still in the middle of the correction."

In the broader market, the Dow Jones Industrial Average gave back 123.58 points to 10531.09. The Nasdaq Composite fell 72.76 points, or 3 percent, to 2380.90.

Internet stocks took the biggest hit at the Goldman Sachs Internet Index
$gin
gave back 5.5 percent, while the Amex Internet Index
$iix
fell 5.6 percent.

Shares of barnesandnoble.com
bnbn
opened at 25, above a revised offering price of 18. That was good for a respectable 39 percent gain, but a far cry from the 200 to 300 percent gains of Internet IPOs earlier in the year. The stock closed down 2 1/16 to 22 15/16. See IPO Report.

"Internet IPOs used to double or triple by definition during the first week of trading, said Credit Suisse First Boston analyst Lise Buyer in a research note. "Not so anymore," she added.

The sentiment was echoed by Sara Zeilstra, Internet analyst at Warburg Dillon Read. "There's still more room to the downside and it'll probably stay relatively weak until we get closer to the end of the quarter and have some news to distract investors away from these issues," said Zeilstra. See Net Stocks.

After posting earlier gains, shares of Lycos
lcos
fell prey to the weakness and dropped 1 1/4 to 96 1/2. The company announced that it will be included in the Nasdaq 100 effective May 28, Credit Suisse First Boston hiked Lycos' rating to "buy" from "hold."

Also heading south, Compaq
cpq
shares descended 1 1/4 to 23 13/16. Compaq said it cut prices on a wide range of its Deskpro desktop PCs. See release.

Shares of IBM
IBM, -1.82%
fell 2 9/16 to 221 3/16. The Linux operating system will now be bundled with IBM's database software for computer servers. See related story.

Software

Shares of Software bellwether Microsoft
MSFT, -1.81%
lost 1 to 76 1/4, helping to send the CBOE Software Index
$cwx
down 0.9 percent. J.D. Edwards
jdec
said in a release it will work with Microsoft to bring software to local and state governments.

Intuit said after the market closed Tuesday that it earned 77 cents per share on a pro forma basis in its third quarter. That's 3 cents ahead of expectations. Ahead of the release, Intuit shares rose 1 7/16 to 77 9/16.

Meanwhile, Novell said after the market closed that its second quarter earnings were 11 cents, a penny more than analysts expected. Novell stock fell 1/4 to 23 3/4 prior to the report.

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